A company is looking to purchase and replace a fixed asset for $245,000. It will sell the asset that will be replaced for $46,000 but will incur a $20,000 gain upon that sale. It must also commit $30,000 of working-capital to the investment. The firm's tax rate is 35%. What is the amount of the relevant initial investment?
A) $245,000
B) $254,000
C) $199,000
D) $206,000

Question

Quizplus · Accepted Answer

($245,000) purchase price + $46,000 sale of old asset - $(20,000 * 35%) tax on gain of sale of old asset - $30,000 working-capital investment = $254,000

A Company Is Looking to Purchase and Replace a Fixed